Currency markets have emerged from the summer period and we are now looking at the development of several new trends in many of the majors. Judging the likely expectations in the British Pound is an action that will continue to remain important, given the effect it should have on broad asset benchmarks like the FTSE 100.

Specifically, downside pressure on assets tied to the value of the British Pound should continue to support the outlook for corporate multinationals with a large foreign consumer base and this could improve earnings results into next quarter. In tracking these trends, the preferred instrument in the Guggenheim CurrencyShares British Pound Trust (NYSEARCA: FXB) as it tracks the value of cable against a large number of foreign currency counterparts.

In this chart above, we can see that FXB has been in a firm downtrend since the end of 2008. There has been a moderate bounce for most of this year but when we are viewing the currency ETF from this longer-term perspective it is relatively clear to see that this is a tepid bounce at best. More likely, we are seeing a small correction within the broader bearish move that should put us back toward resistance levels near 135.

From there, the scope for further upside will diminish quickly, as the indicator readings will be approaching overbought territory at that stage. Many of these forecasts match the outlook posted by the consensus in the real trader community and this suggests that the broader trading community is positioning on one side of the market.

Overall, this presents some interesting short opportunities for those with a medium term outlook in these markets. But the peripheral impact will likely reach the FTSE 100, as well, if we are assessing the likely trajectory on the longer-term time frames. Investors should keep this in mind when trading in the broader stock benchmarks, as well as in assets that are directly tied to the currency markets.

By Richard Cox

© 2017 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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